Tax Ruling Boosts UK Holiday Let Owners

By Editorial 09 March, 2012

HM Revenue and Customs (HMRC) has lost another key court case, with the passage of a tribunal decision that will permit holiday let owners across the UK to claim Business Property Relief (BPR) for inheritance tax (IHT) purposes.

The First-Tier Tax Tribunal has dismissed HMRC’s argument that furnished holiday lets should not be considered a business for IHT purposes. It ruled that “an intelligent businessman would not consider them to be investments”.

According to accountants James Cowper, holiday let owners are now in line for a tax windfall. As the firm explains, HMRC had sought to categorize the holiday let with other buy-to-let and rental property, and to charge IHT on the owner’s death accordingly. HMRC's own guidance states that relief is only to be given where the owner was substantially involved with holidaymakers but this was not accepted.

The firm points out that BPR can avoid IHT on the full value of a holiday let asset transferred on the owner’s death. Therefore, whilst the ruling concerned a UK property, it could also have consequences for people who let out their property abroad.

Stephen Barratt, private client director James Cowper, explains: “This ruling has surprised many because there is no clear evidence that the owner was substantially involved with the holidaymakers thus casting doubt on HMRC’s own guidance. While HMRC can be expected to take their arguments to the Upper Tier Tribunal, as it stands, however, the decision is good news and could open the door to a flood of claimants who have been awaiting the verdict. It could also give people greater certainty in planning their affairs."

“Those with overseas property that they let out such as a villa in Spain could also find that they will be able to make a BPR claim as well. Maintaining proper records and filing accounts with HMRC will be important in preparing the way for a claim to relief, as well as to avoid penalties following the initiative started at the end of last year which has seen inspectors starting to clamp down on unpaid tax on overseas properties.”

Barratt does, however, add a word of caution. “Whilst the ruling does seem to set a low bar for claiming relief, those letting holiday accommodation should still look to satisfy HMRC’s more stringent tests wherever practical in case future developments go against taxpayers. If an owner believes they may benefit from the implications of the decision, professional guidance should be sought so that matters are planned and dealt with in the best possible way,” he stressed.

Tags: Expatriates | Court | Inheritance Tax | Tax | Investment | Business | Real-estate Investment | Law | Real-estate | United Kingdom | Offshore |


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